by Cem Sertoglu, Partner at Earlybird Venture Capital in Istanbul

September 29, 2015

Now that Apple is openly encouraging ad blockers, publishers are up in arms. The topic dominated the tech conversation last week, and I think it is well understood by now. If you are not up to speed on it, here are a fewlinks to skim.

This development should not be a surprise to anyone in digital media. We have been headed in this direction for a while. When was the last time you persevered through a Youtube pre-roll's full length? How about clicking on a display ad?

Apple's move is understandable. While spammy ads are a nuisance on the desktop experience, they are a killer when you deal with them on the small smartphone screens. Apple wants its users happy in their browsing experience, and does not have to apologise to anyone when you decide to use blockers.

Ultimately the media audience is gaining power, and it will reward not those that are trying to circumvent and trick the distribution channels, but those that are committed to delivering engagement.

A good recent example is Medium, which has grabbed the headlines with its recent round. It is delivering real engagement and thus proving valuable to the brands that are using it to deliver their messages - in context and without spam.

September 07, 2015

The web is aging. I remember the day my co-founder at SelectMinds, Steve Richmond, first pointed me to the new search engine, Google, in 1999. I also remember setting up my first Gmail account, this blog on Typepad, my YemekSepeti account, all in 2005, my Facebook account in 2006, my Twitter account in 2007, my Runkeeper account in 2010, and my Uber account in 2012. I have had little reason to switch from these services, and continue to use them still in 2015. In the meanwhile, these services have learned about my preferences and patterns.

Most of these services publish APIs that would allow me, or a service I'd permit, suck meaningful data out of them. What is important for that service is that it knows the context of these services. Think of it as a Zapier or Unroll.me, not for connecting services to each other or unsubscribing, but for connecting them to me, so I can claim my ownership of my data growing in each of these services. Ideally, such a service would then offer me a set of tools to manage this data, provide wizards for migrating between service providers.

I am surprised such a service is not here yet. I think it would be a valuable area to tackle.

PS. Of the services listed above, Typepad will likely be the first one I abandon. I'd appreciate a tip if you know of a good tool for migrating out of Typepad.

September 03, 2015

Technology educates. Uber has taught millions of people to dip their hands in their pockets, as opposed to raising it up in the air, when they need a ride. Booking.com has taught people to consider to the flexibility of their travel plans, when booking a hotel room. They have influenced behavior, made things easier, and created a lot of value by gaining lots of customers.

On the supplier side, they have become the platform of choice, primarily because they had aggregated the greatest slice of demand, in the shape of the customers mentioned above. They then capitalized on their aggregated supply and demand, by commanding very high take rates (commissions) from the transactions they enable, leading to their unicorn status. In the case of Uber, a recent leak indicates that the take rate is ~20%, and at Booking.com, the take rate estimate is ~%16.

One question that comes to mind is whether these high take rates will survive? The pressure is on the platform, especially as it grows, allowing it to benefit from economies of scale, and as competition emerges, to lower its take rate. We have seen this in numerous marketplace businesses in our portfolio. In addition, the education process I describe above, is also benefiting the incumbents who are utilizing these platforms to reach customers. A case in point is the case of Hilton's own booking app. According to the NY Times:

Hilton has introduced a number of services for guests who book directly, including a digital check-in option that eliminates waiting in line. Quickly adopted by its customers, the app is now used by over one million people each month, according to Geraldine Calpin, who oversees Hilton’s worldwide digital efforts.

A million people each month is a huge number, and should be an alarm for Booking.com. A company called Arrow will soon make NY yellow cabs as easily hail-able as Uber cabs. Technology, while educating users on more efficient new behaviors, is also lowering the cost of incumbents to battle marketplaces.

My prediction is that marketplaces will ultimately earn their permanent place in their respective markets (note the pun :)), but I would not count on the high take rates to continue.

June 02, 2015

I am your customer, perhaps a happy and loyal one. Therefore, I pay attention to your emails - I may have placed an order on your service, or may be expecting to hear from you.

So I open your emails, especially if they come from the same email domain as your service's notifications do. If many of those emails are unsolicited and irrelevant ads and promotions, you are abusing my loyalty.

Stop taking advantage of the attention of your valuable customers.

As an aside, there is a business opportunity to figure out how to separate service notifications from promotions. Gmail does not seem to do a good job at this.

May 05, 2015

One of the most frequent questions we got when we were raising our Turkey & CEE-focused VC fund at Earlybird, was about the small number of large exits in the region, especially in Turkey. Our thesis was that the problem was on the supply side - not enough large startups were being built. We contended that the market was large, and part of the problem, to which we were bringing the solution, was the lack of local funding.

Today, we have the great news that YemekSepeti has been acquired by Delivery Hero for $589m, which makes it the first Turkish internet startup exit above 1 billion TL (TL 1,596,000,000) to be precise. I have known the company since 2008, and saw it develop into one of the healthiest marketplace businesses I have ever seen in the world.

Congratulations and heartfelt thanks to Nevzat, Melih and the rest of the team that made it happen. Your story will become a beacon for many more talented young entrepreneurs. Well deserved!

Galston's post is worth reading in full, so I will not try to summarize, except for one very interesting data point: that almost 45% of its revenue comes from Seller Services, compared to ~25% just two years ago.

This means that the growth of the marketplace is going to be more dependent on the number of sellers, than the transaction volume. At first look, this does not look too intelligent: the latter number will certainly grow faster. However, as we see marketplaces maturing, this is the way that the leader/incumbent can take aggressive pricing moves to keep competitors away. This is observable in Etsy's commissions moving from 5+% to 3.5%. If you are an emerging Etsy competitor, there's not enough margin for you to grow fast.

Ultimately, this can lead to marketplace deflation, a la CraigsList, which came and killed many fledgling classifieds sites with its massive traffic and free offering. I am curious to see if we start seeing this type of defensive behavior from the modern marketplace champions, such as, Uber and Airbnb.

December 11, 2014

The only reason I did not have eight champions league matches to choose from on my TV is that someone's spreadsheet suggested that it was more profitable to remove my alternatives to try to coerce me into watching the single game that was sold to the Turkish CL rights holder. Well, it didn't work.

This reminds me of the diamond trade, where supply is artificially manipulated to manage pricing levels. Ultimately, the laws of nature are on the diamond industry's side: there will be less diamonds in the future. But in digital media, where the marginal cost of increased consumption is almost nil, the attempts at feigning scarcity will lose in the long term.

I came across a blog post today by Connor Murphy on the different approaches to fundraising for your startup. It made me think of the vast amount of resources for tech entrepreneurs today, compared to 1999, when I started my startup journey. I sometimes wonder whether the naivete, that was a result of how clueless I was about what it would be like to start a tech business, was a factor in my decision.

In any case, if you are a rookie tech founder, there's a ton of intelligence, advice and anecdotes available for you out there. One of the better resources is YCombinator's Sam Altman's class at Stanford titled "How to Start a Startup". He tapes his class sessions and posts them on Youtube. I would highly recommend investing a few days in digesting his content.

April 29, 2014

This is the age of TechCrunch and Business Insider. Numbers with a lot of zeroes are sexy, so tech startups are sexy. Again. The last link is not to be taken as a suggestion that I think there is a bubble. I don't think there is. Not like in 1999. Topic for another post.

But, the high valuations and the amplification of tech media is whetting the appetites of entrepreneurs in our region, causing eventual disappointment on both sides of the table.

Our region has historically had difficulty creating large technology companies. I am excluding Turkcell, etc., as I view them more as regulated utilities. Turkey has not produced a single global technology success story, yet. I think that is an anomaly and it will change, but so far, it's the reality. The largest tech exit in Turkey was GittiGidiyor, at $220m. We now have a handful of tech companies valued over $100m, and some of those will get to large exits at some point.

Entrepreneurs should understand that this is the framework we have to work within.

Now, combine this fact with the expectation you'll see at every early-stage tech investor: at least a 10-20X return on her investment, if all goes well. They expect this because their portfolio will need these 10-20Xs to deliver the promised returns to their investors. That's how the math works. Without these homeruns, the portfolio will deliver mediocre returns, at best.

This is the math you, the entrepreneur, should have in mind in your dialog with any investor in our geography. Until we see $billion exits, we'll assume your company will be exit at much lower valuations, setting the stage for more modest valuations, compared to silicon valley stories you read about.

I think the money slides are 19 and 20. We see so many startups comparing themselves to companies with very different economics underlying their businesses. And, much capital gets wasted, chasing someone else's growth curve that is just not attainable for their business model.

The LTV/CAC analysis needs to be a top-down one, and one that gets iterated as a company moves down its own growth curve. Any hasty conclusion is usually a costly one.